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As we approach the final quarter, we should start thinking about the coming year and all that it might entail. Which means that not only should we be thinking about what artists and recordings we hope to release next year, but that we also should build financial projections and budgets so see that we remain fiscally healthy. This assumes you're already fiscally healthy.

How do you go about assembling projections for the future?

Start by listing all the recordings you hope to release in the coming year. Then estimate in what months they'll be released. Figure out how many units you plan to ship initially for each title and then reorders by title in subsequent months. This will yield sales estimates for each new release. Supplement these by doing the same thing for back catalog reorders as a group. Back catalog is the aggregate of all titles put out in prior years, with the possible exception of best-selling titles released late this year. In that case you'll make separate estimates for these titles.

Put all of these estimates in a spreadsheet, if you haven't already done so. What you'll have is a projection of unit sales by month for the entire coming year. Convert these numbers from units to dollars based on your prices to your distributors and house accounts. So you've now projected unit sales and dollar volume for each month of the entire year!

The next step is to take the dollar estimates and shift them later in time to reflect when you realistically expect to get paid by your distributor for those sales. Be conservative with these numbers, because all the rest of the financial projections will be based on them.

Factor in on-line sales and other ancillary income such as royalties for licenses you may have issued, or for getting your music used in television shows or feature films.

You now have a spreadsheet that projects the gross income for next year.

The next step is to estimate all expenses by department or function, in the same manner. For example, estimate all your marketing expenses for each new release, broken down into categories -- radio promotion, publicity, direct advertising, advertising charge-backs, promotional deals, etc. You can post the estimate for the month you make the commitment, or preferably, the month when you anticipate actually having to pay the expenses. Do exactly the same thing with all other departmental costs. Numbers for each department or function should be on a separate spreadsheet page -- all in the same workbook.

Then estimate personnel costs, such as salaries, medical insurance and other fringes, and travel and entertainment expenses. Include merit raises and when they might occur. Think about whether you might have to add additional employees and the month or quarter that might occur. The same applies to capital expenditures such as desks and computers. Even those these items will be capitalized, they'll still affect your cash flow projections.

Estimate artist and mechanical royalty payments for the months they will occur. Artist royalty statements and accompanying payments are usually issued at the end of March and September, which is ninety days after the preceding six-month period. Mechanical (publisher) royalties are usually paid by mid-February, mid-May, August, and November, 45 days after the preceding calendar quarter.

Subtotal all of the expenses and bring them up to a "top sheet" -- along with the income numbers you already estimated. Subtract expenses from income and you'll have numbers that will project either a net profit or a loss -- hopefully the former!

If you're projecting a loss, now is the time to see what you can do to improve the numbers. How might you be able to raise income by increasing sales, or by finding other ways to bring in money? Can you reduce expenses without impairing the actual functioning of the label?

This is the art of financial planning, and such a forward-thinking budget process results in a kind of road map for the coming year's activity. Once you have a financial plan that you're comfortable with, try to stick to it as best you can, but don't let it get in the way of growth or progress.

Keep track of what you're doing each month by revising the budget based on real income and expenses as they occur. How does reality compare to the projections? Are you ahead or behind your estimates? Feel free to readjust the projections as you proceed through the year. You may decide to put out one or two additional releases, or a planned major release may slip later in time. Some artists are notorious for late delivery of masters!

You'll probably put a lot of time and thought into the budgeting process, but the results should be extremely worthwhile and should keep your business running on a healthy fiscal basis.

Adapted from Keith Holzman's "Manage for Success," Newsletter #41, copyright September 2004.



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Copyright © Tag It 2004 - Republished with Permission